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Speaker 1: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 1: On today's episode, we'll take a look at the potential

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Speaker 1: effects of President elect Trump's cabinet picks in a moment,

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Speaker 1: will be joined by Mark Matthews of Julius bhar in Singapore.

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Speaker 1: But first a look at China's interest rate landscape in

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Speaker 1: front of next week's meeting of the PBOC. Joining me

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Speaker 1: now is Juwong, head of Greater China FX and rate

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Speaker 1: Strategy at B and P Periba. She joins from Hong Kong.

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Speaker 1: Jew thanks for taking the time to chat with us.

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Speaker 1: So many things to talk about. In the wake of

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Speaker 1: Donald Trump's presidential election victory Here in the US, one

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Speaker 1: of the unmistakable reactions has been this backup in US

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Speaker 1: treasury yields, and that in turn has led to a

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Speaker 1: rally in the US dollar. I'm curious as to whether

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Speaker 1: or not you view these moves as being durable or

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Speaker 1: are they kind of temporary phenomenon.

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Speaker 2: I think the move has been in long with our

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Speaker 2: expectation on the Republican victory, so market conventional wisdom is

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Speaker 2: that under Trump administration, the policy is going to be

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Speaker 2: more inflationary given what they prefer to do, for example

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Speaker 2: on the immigration policy, on the tariffa front. Uh, these

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Speaker 2: are all quite to shifted towards the even more inflationary

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Speaker 2: kind of a bias. So as as a result of that,

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Speaker 2: the U su USUS have backed up and the dollar

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Speaker 2: has strengthened. So far, these things are moving very, very

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Speaker 2: consistent with this conventional thinking about the future US A

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Speaker 2: policy bias.

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Speaker 1: Yeah, but if you look at the way in which

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Speaker 1: some of these Asian currencies have been behaving, the Japanese

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Speaker 1: yen week, offshore Chinese yuan week as well, I know

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Speaker 1: we have a PBOC meeting in the week ahead. When

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Speaker 1: you look at that type of yu wan weakness, does

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Speaker 1: it present a challenge for policy makers at the PBOC?

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Speaker 2: Actually, the dollar b move is exactly in line with

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Speaker 2: our review. We are thinking that at the initial reaction

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Speaker 2: of trump victory, dollar room INB is going to bounce

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Speaker 2: back towards the seven twenty seven thirty wrench, but not beyond.

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Speaker 2: And this is just to keep the arm B to

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Speaker 2: be consistent with a broad dollar move, and the euro move,

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Speaker 2: to be honest, is also quite consistent. Our house view

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Speaker 2: is that the potential ten percent tariff con triggered four

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Speaker 2: percent drop of the euro dollar. If the FED is

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Speaker 2: going to revert back into a tightening trend, maybe seven

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Speaker 2: percent drop of the euro. And so far we have

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Speaker 2: had a five percent drop of the euro since late

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Speaker 2: September when the market the first position for this US

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Speaker 2: election to the current level. So I think the initial

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Speaker 2: first round of reaction towards the Trump victory and tariff

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Speaker 2: threat is already here. The next question is will inflation

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Speaker 2: research in the US and hence the fact will be

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Speaker 2: forced into tightening trajectory, and if that's the case, maybe

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Speaker 2: we have another round of dropping Europe. But I think

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Speaker 2: at the moment we're thinking that the market reaction has

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Speaker 2: pricing a fair amount of initial reaction towards the Trump victory.

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Speaker 1: So do you believe the house view at B and

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Speaker 1: P Paraba that these tariffs will in fact go into

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Speaker 1: a fact that it's not just a kind of a

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Speaker 1: bargaining strategy, a negotiating ploy on the part of the

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Speaker 1: incoming administration.

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Speaker 2: Looking at the truck record of President Trump in his

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Speaker 2: first term, he did manage to deliver quite some of

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Speaker 2: their tariff threat he had promised. So we do think

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Speaker 2: the market is thinking that we will get some tariffs

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Speaker 2: into twenty twenty five and incoming and later. But is

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Speaker 2: also question whether sixty percent tariff is possible, given that

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Speaker 2: that is a tremendously higher level of tariffs compared to

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Speaker 2: his first term, and whether the world can handle for

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Speaker 2: ten percent tariff for all countries and sixty percent on China.

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Speaker 2: So in that sense, I think the market is thinking

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Speaker 2: some tariffs will come, but again that will serve as

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Speaker 2: negotiation tour by the Trumpet administration for a better, for

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Speaker 2: more benefit for the United States.

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Speaker 1: Let's talk a little bit about what's happening in China.

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Speaker 1: Last week we had the meeting of the National People's Congress.

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Speaker 1: A lot of the focus was on supporting local governments

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Speaker 1: to do more, especially where the property market is concerned.

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Speaker 1: Very little attention seem to be paid to boosting domestic demand.

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Speaker 1: Is that a concern in the macro our.

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Speaker 2: Overall view is that China policy has started to shift

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Speaker 2: towards more pro growth and pull domestic demand territory. So

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Speaker 2: the fact they announced six trillions that swap for the

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Speaker 2: local government debt and some other additional resources, the total

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Speaker 2: package is nearly twelve training R and B over the

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Speaker 2: next two to three years. That's definitely marked a turning

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Speaker 2: in policy stunts. We are all aware that starting from

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Speaker 2: early twenty twenty one, China was in a deleveraging kind

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Speaker 2: of trend triggered by the property sector restructuring, and this

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Speaker 2: has come to the end. But we're also emphasizing that

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Speaker 2: even twelve trillion over two to three years, that's not

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Speaker 2: yet a basuka level, just to think about the potential

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Speaker 2: tariffs that can have damage on the China's exports into

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Speaker 2: twenty twenty five. You know, the various houses has different

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Speaker 2: estimation of our pot damage on GDPs. I see numbers

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Speaker 2: arranged from one to two percent for GDP, and China

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Speaker 2: does need to do more on the domestic policy side

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Speaker 2: to support the growth. So we're thinking that the twelve

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Speaker 2: trillion over two to three years, on average, every year

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Speaker 2: you get you know, maybe three trillion similars, that's just

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Speaker 2: to offset the shock from the external side. So netting net,

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Speaker 2: we see things that are turning. You know, the policy

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Speaker 2: stems are turning more supportive. You can see that in

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Speaker 2: the local stocks, particularly the local focused you know CSI

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Speaker 2: one thousand type of index rather than a foreigner focused

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Speaker 2: one because foreigner focus ones are more impacted by the

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Speaker 2: dollar rates and the dollar use. There's a sign of relief.

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Speaker 2: Local people started opening a stock accounts and participate more

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Speaker 2: in the stock market, so in that sense, they also

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Speaker 2: believe that policy has turning more pro growth. This is

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Speaker 2: not a Zuka level.

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Speaker 1: It's interesting that you kind of put your finger on

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Speaker 1: the equity market as a leading measure of sentiment. Would

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Speaker 1: you do that over let's say the property market. Is

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Speaker 1: that the more reliable indicator of kind of retail or

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Speaker 1: consumer level.

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Speaker 2: Sentiment on a property market. We did see a property

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Speaker 2: transaction volume picked up Intilo one cities in October, but

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Speaker 2: we're also emphasizing there's always a lead and lack effect

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Speaker 2: regarding financial market versus actual economic activities. So in terms

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Speaker 2: of financial markets, actually, if we look at the property

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Speaker 2: developers dollar bonds, they have already started to recover at

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Speaker 2: the beginning of this year, so they were one of

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Speaker 2: the best performing credits products in the world. So the

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Speaker 2: equity market only started to react in late September. So

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Speaker 2: the actual economic activity which we're frying to proper investment.

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Speaker 2: We don't think that the bottened out so quickly, it

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Speaker 2: still takes time for market to UH reduce inventries. UH.

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Speaker 2: The new home sales needs to pick up in a

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Speaker 2: sustainable way for a couple of years. Then we reach

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Speaker 2: the points that inventory are going to be low enough

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Speaker 2: for the developers to buy lance and start even investments,

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Speaker 2: and by that time we will see self, you know,

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Speaker 2: sustained improvement in domestic demand. And between now and then,

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Speaker 2: we still need the policies to plug in UH. Essentially

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Speaker 2: that's what they have started doing UH issuing more central

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Speaker 2: government bonds, issuing more special local government bonds, to swapping

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Speaker 2: the UH existing hidden local government debt and lower the

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Speaker 2: mortgage UH rates for the household, et cetera, et cetera.

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Speaker 2: So we think overall we're in the gradual burtoning process.

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Speaker 2: The market has run ahead of itself in Subtember and

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Speaker 2: hence got pulled back, especially when they come to realize

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Speaker 2: there's a threat of tariffs into twenty twenty five. But

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Speaker 2: we're thinking that purely. Look at the domestic focused products

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Speaker 2: like the CSI one thousand. These are good indicator of

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Speaker 2: local people start to believe that liquiditys and policies are

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Speaker 2: turning more progrowths.

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Speaker 1: So maybe China is able to meet that five percent

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Speaker 1: growth target.

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Speaker 2: What do you think we think they'll probably be able

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Speaker 2: to get close to that for this year end next year,

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Speaker 2: the challenge is really high given the tariffs threat I

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Speaker 2: mentioned earlier, So theoretically they need to do more. But

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Speaker 2: as as I mentioned that additional at least two three

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Speaker 2: treatings of physical spending into twenty twenty five is there

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Speaker 2: to offset their exports. A shock needness to say, the

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Speaker 2: growth is still going to face a lot of head

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Speaker 2: wings given the group on certainties, no.

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Speaker 1: Doubt about that. Chiu Wong, thank you so much for

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Speaker 1: joining us on the Daybreak Asia podcast. Chew Wong is

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Speaker 1: head of Greater China FX and rate Strategy at BNP

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Speaker 1: Perabaud joining us from Hong Kong. Mark Matthews joins us.

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Speaker 1: He's managing director also head of Asia Research at the Bank.

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Speaker 1: Julius Bear joining from Singapore. Mark, thanks for making time

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Speaker 1: for us. Can we begin with the results of the

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Speaker 1: US election and what the impact of President elect Trump.

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Speaker 1: We've heard now about several cabinet appointments that he intends

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Speaker 1: to make. What that has done to your thinking on

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Speaker 1: putting money to work in markets.

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Speaker 3: Well right now, it hasn't changed my thinking, Doug, because

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Speaker 3: if you look back at his first term, Trump often

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Speaker 3: differed from his top advisors, and as we all know,

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Speaker 3: he has a history of being unpredictable. As a matter

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Speaker 3: of fact, I think he does it on purpose. He

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Speaker 3: surrounds himself by very hawkish advisors, and then he does

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Speaker 3: a kind of good cop bad cop routine with himself

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Speaker 3: being the good cop. And so, you know, I know

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Speaker 3: a lot of people are concerned. Mike Waltz, Marco Rubio,

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Speaker 3: Eli Stefanick, John Ratcliffe, and Robert Leitheiser will undoubtedly be

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Speaker 3: back as trade representative. I'm sure Peter Navarro will have

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Speaker 3: a role somewhere. They're all hawks on foreign policy, especially

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Speaker 3: on China. But I think that he's going to do

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Speaker 3: the good good cop bad cop thing, and I think

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Speaker 3: he's going to side more with advisors who are from

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Speaker 3: the private sector, particularly Elon Musk when it comes to

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Speaker 3: China in particular, and those kind of people, the private

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Speaker 3: sector advisors, they don't want a cold war. They actually

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Speaker 3: want improved relations with China. So very hard to say,

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Speaker 3: but you know, if I had to guess, I think

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Speaker 3: that the relations will actually improve.

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Speaker 1: Well, there's a lot to unpack there. I want to

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Speaker 1: talk about the China angle momentarily, but you mentioned Elon Musk,

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Speaker 1: and tonight the President elect announced that mister Musk will

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Speaker 1: be working in conjunction with Vivek Ramaswami to lead the

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Speaker 1: US Department of Government Deficiency. They're calling a doge little

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Speaker 1: ironic perhaps when you look at the way in which

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Speaker 1: the bond market has been reacting to a lot of

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Speaker 1: what it expects to see in terms of Trump policies,

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Speaker 1: particularly on the subject of tax cuts. We've got yields

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Speaker 1: elevated right across the curve, as you know. Could this

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Speaker 1: be one of the guardrails that kind of contains the

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Speaker 1: ambitions of a new administration.

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Speaker 3: Well, I think absolutely, Doug. I think you're right to

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Speaker 3: say that because there was a broad assumption leading up

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Speaker 3: to the election that Trump equals inflation. And I'm not

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Speaker 3: saying inflations going back to two percent, but I don't

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Speaker 3: think it's going to spike because of all the pro

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Speaker 3: growth policies of the Trump administration, including tax cuts. And

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Speaker 3: one of the reasons is just what you said, there's

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Speaker 3: so much fat that could be cut from the government

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Speaker 3: that those two individuals will be looking for that government

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Speaker 3: spending could you know, not rise as quickly as have

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Speaker 3: been anticipated, and that in turn would put a handle

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Speaker 3: on inflation.

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Speaker 1: So we were talking a moment ago about the US

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Speaker 1: China relations, and we know that President electromp is insisting

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Speaker 1: on imposing some type of tariff, maybe as much as

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Speaker 1: sixty percent on Chinese goods that would be imported to

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Speaker 1: the United States. Are you expecting a full blown trade

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Speaker 1: war here or is this just a bargaining chip and

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Speaker 1: we're going to see some negotiation between Washington and Beijing.

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Speaker 3: I think it's a bargaining chip. And by the way,

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Speaker 3: China responded with one of its own overnight apples facing

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Speaker 3: a lawsuit in China over its app store practices, So

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Speaker 3: you're going to have that tit for tat. But what

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Speaker 3: I would say is, broadly speaking, not just the United States,

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Speaker 3: but everyone in the world is getting a little antsy

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Speaker 3: about China's exports because they just keep going up and

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Speaker 3: up and up. So I think the political ties are

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Speaker 3: going to improve based on what I just told you,

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Speaker 3: But the general plan of action I think when it

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Speaker 3: comes to the commercial side, will be to try to

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Speaker 3: reduce the US reliance on Chinese exports by making more

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Speaker 3: things at home and also buying from other countries. Now,

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Speaker 3: I would say one caveat is if China builds factories

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Speaker 3: in the US. And that sounds very improbable because people

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Speaker 3: are worried that, you know, there's electronics and electric vehicles,

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Speaker 3: so they could be spying on the drivers. And Chinese

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Speaker 3: car companies rely on their own supply chain. But somehow,

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Speaker 3: if they could circumvent those issues and make cars in

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Speaker 3: the US, I think that would be a huge game

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Speaker 3: changer because if you think back to the nineteen eighties

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Speaker 3: when relations with Japan were very frosty, and then Japanese

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Speaker 3: companies build cars in the US and that really helped

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Speaker 3: to improve the relationship between Japan and the US. So

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Speaker 3: imagine if China was actually seen as adding jobs to

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Speaker 3: the US economy instead of just taking them away. What

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Speaker 3: a sea change and perception that could be.

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Speaker 1: When you look at what's happening in China right now

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Speaker 1: in terms of the economic weakness and the very impactful

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Speaker 1: and strong deflationary pressure that's been building for quite some time.

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Speaker 1: Is the stimulus that has been announced recently by Beijing

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Speaker 1: do you think that's enough to improve the situation in

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Speaker 1: a meaningful way.

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Speaker 3: I think if you add it all up, yes, but

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Speaker 3: we don't have all of it, and I think what

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Speaker 3: at least the experts are saying is we probably won't

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Speaker 3: have all of it until March at the two Sessions

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Speaker 3: meetings next year. In my mind, the most important thing

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Speaker 3: is that there has clearly been a pit policy pivot.

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Speaker 3: They want to stimulate their economy, and being a command economy,

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Speaker 3: if they want to do it, they will. They have

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Speaker 3: the means. So I think it's very meaningful and there's

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Speaker 3: more coming.

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Speaker 1: I almost hesitate to draw the analogy between what's going

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Speaker 1: on in China these days and what happened to Japan

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Speaker 1: thirty years ago. Maybe it's a well worn analog, but

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Speaker 1: is it relevant? Is there a threat perhaps that China

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Speaker 1: could get mired into a deflationary trap for some time?

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Speaker 3: Yeah, balance sheet recession. I think much depends on property

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Speaker 3: prices because eighty percent of Chinese household wealth is in

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Speaker 3: residential property. Ergo, if prices keep going down, consumer confidence

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Speaker 3: is not going to recover. I am personally hopeful that

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Speaker 3: this stimulus and the stimulus that I anticipate will be

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Speaker 3: coming in the beginning of next year, will be enough

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Speaker 3: to stop residential property prices going down. I mean broadly,

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Speaker 3: I would say around three months from now, I would

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Speaker 3: expect to bottom and prices and not a sharp recovery.

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Speaker 3: But if there is a bottoman property prices, then you're

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Speaker 3: going to see a consumer rebound. And so I'm optimistic

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Speaker 3: looking into twenty twenty four, sorry, twenty twenty five. For

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Speaker 3: the Chinese, I think they, as I said, they've made

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Speaker 3: a very big one hundred and eightygree turn.

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Speaker 1: It's going to be very interesting. As you know, later

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Speaker 1: this week we're going to get the monthly activity data

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Speaker 1: industrial production, retail sales, two key data points. I'm curious

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Speaker 1: Marcus to whether you're putting money to work in Chinese

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Speaker 1: equities right now.

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Speaker 3: As a trade, yes, but structurally we're not committing any

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Speaker 3: money to the Chinese market in terms of the core portfolio.

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Speaker 3: And there are many, many reasons for that, but I

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Speaker 3: think the biggest reason is that the state's involvement in

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Speaker 3: the private sector has radically reduced the return and equity

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Speaker 3: of the big technology stocks that drove the bull market

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Speaker 3: and the previous ten years. And I don't see that

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Speaker 3: it's self changing. Meaningfully, the fact that this government prioritizes

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Speaker 3: the public sector over the private sector. That reduces the

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Speaker 3: return and equity of China inc. So tactically, yes, I

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Speaker 3: think it's going to keep going up because of the

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Speaker 3: reasons I just said, and also because it's an extremely

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Speaker 3: cheap market. I mean I can find several dozen companies

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Speaker 3: where numerically the price earnings ratio is below the dividend yield.

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Speaker 3: And I remember Peter Lynch used to say back in

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Speaker 3: the eighties that if you can ever find a company

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Speaker 3: like that, it's certainly worthy of investigation because it shouldn't happen.

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Speaker 3: So China's got tons of them. It's cheap, it's, you know,

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Speaker 3: a command economy where they're clearly saying they want the

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Speaker 3: economy to start growing again. It just adds up to

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Speaker 3: me that the stock market should continue to rise.

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Speaker 1: Are you seeing opportunity elsewhere in Asia across the Pacific Rim?

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Speaker 3: Yes, there is. I mean there is certainly opportunity in

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Speaker 3: this part of the world. Japan on the whole is

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Speaker 3: a low Roe market because there's too many middlemen and

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Speaker 3: the koretsu nature of many of the big companies means

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Speaker 3: they've got their fingers in too many pies. They're too scattered.

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Speaker 3: So however, it's such a large market you can easily

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Speaker 3: construct a basket of companies with returns in equity in

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Speaker 3: the twenties and above. There's actually about a dozen of

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Speaker 3: those kind of companies too that they're large and liquid.

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Speaker 3: So I mean there's good companies which have global brand

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Speaker 3: names by the way, which the rest of Asia lacks,

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Speaker 3: and high Roi's in Japan and then Southeast Asia. You know,

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Speaker 3: you can go from Thailand where Taxon's daughter's prime minister

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Speaker 3: and therefore it's a pro growth government. In Malaysia the

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Speaker 3: new Agong which is their king is the Sultan of

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Speaker 3: Johori's pro business and Probo's pro business. In Indonesia, Marcos's

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Speaker 3: pro business and Philippines. So I think we have pro

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Speaker 3: business governments and economies that are doing well in Southeast Asia.

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Speaker 3: So yeah, there's plenty of pickings in Asia outside of China.

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Speaker 1: Mark will leave it there pleasure to talk to as always.

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Speaker 1: Mark Matthews is Managing Director. He is also head of

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Speaker 1: Asia Research at the Bank Julius Bear. Joining us from

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Speaker 1: Singapore here on the Daybreak Asia podcast. This is Bloomberg

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